AXT's Q2 2025: Unpacking Contradictions in Indium Phosphide and Gallium Arsenide Markets

Indium phosphide market share and demand, gallium arsenide yield improvement, indium phosphide market recovery, indium phosphide export controls and market impact, and gallium arsenide export licenses are the key contradictions discussed in AXT's latest 2025Q2 earnings call.



Revenue and Market Dynamics:
- AXT Inc. reported revenue of $18.0 million for Q2 2025, down from $19.4 million in Q1 and $27.9 million in Q2 2024.
- This was due to longer processing times for gallium arsenide export permits and sluggish demand in China.

Gross Margin Improvement:
- AXT's non-GAAP gross margin improved to 8.2% in Q2 2025, up from a negative 6.1% in Q1 and 27.6% in Q2 2024.
- This was driven by a strong focus on manufacturing processes and efficiency.

Export Permit Challenges and Opportunities:
- The company's growth was impacted by delays in obtaining export permits for gallium arsenide and indium phosphide.
- However, obtaining the first indium phosphide export license in June allowed for initial orders to be shipped, creating future growth opportunities.

Strategic Market Growth:
- AXT saw healthy growth in AI-related demand for indium phosphide substrates in China, with a goal to grow total indium phosphide revenue by 30% or more in Q3.
- This growth is driven by the expanding domestic market for EML and silicon photonics-based lasers in China.